Q. My fixed rate is up on my mortgage next month and it looks like I am going to be facing a significant increase in my repayments. My adviser is recommending that I switch mortgage for a better rate, but I don’t want to go through all that again. Is there way to bring down my rate without moving my mortgage to a new lender?
A. This is the question that I have been asked more than any other in the last few weeks. It is the same question all mortgage holders, including first time buyers are asking themselves, or should be asking themselves. Should I stick or switch?
At the moment it doesn’t look wise to lock in your mortgage at 4.75% or more. While Interest rates are not coming down immediately, they are likely to fall sooner rather than later, posing a dilemma for those taking out mortgages or coming to an end of a fixed rate. With the European Central Bank (ECB) having announced no change in its base rates at the March meeting, inflation is falling, interest rates have peaked and, at some stage this year, they are going to start falling.
This also has implications for those on trackers. For those who have stuck with their trackers, they have taken a significant hit but are in line for some relief, albeit that it will be gradual in emerging. Those rolling off fixed rates, are facing a hike no matter what. As with new buyers, they should be careful not to lock in for too long a period at too high a rate in a market where rates in general should start to ease in the second half of the year.
So, what should those moving house, moving mortgage or first-time buyers do? As ever, there is no simple answer. But the first advice for borrowers is to try to see through the noise and focus on what we do know, or at least what now looks likely. It looks extremely likely that the ECB will reduce interest rates in April, or May, or in June? Personally, I think June. The key thing is that inflation in the euro zone has fallen quickly and there is little doubt that interest rates are, indeed, going to fall this year. This will probably be the start of a gradual downward march in rates through the rest of this year and into 2025. The cuts are likely to be in steps of a quarter of a percentage point – so a quarter-point cut in June would now be a reasonable bet for a place to start.
Interest rates are likely to fall further next year, but the full extent of the decline is up for debate. There is plenty of room to take rates down and to commence the journey back towards a more neutral stance, but it will not return anywhere close to the level it was at before the increases started in summer 2022, barring some massive new economic downturn. Mortgages in future will cost less than they do now, but more than they did in the years between the financial crash and the pandemic.
Irish borrowers have got used to fixing their mortgage with attractive fixed rates in recent years. Now, however, the outlook has changed. ECB interest rates have peaked and are on the way down, So the main risk is locking in at an interest rate that is too high for too long.
Summary: There is no one ‘right’ answer in the current market. As ever, the array of rates on offer depending on circumstances, the preferences of individual buyers and the different terms and conditions attached to various loans means professional advice is advised.
Some may opt for a variable rate in the short term, planning to switch to a fixed rate later this year or early next year. There is no cost in switching from a variable to a fixed rate. If you need certainty in your repayment, you could look at a short-term fixed rate. There are one-year fixed offers on the market as an alternative option to going variable.
You need to do the sums to ensure that you are getting the best rate for you. Ask your Financial Broker to help you here. It’s exactly what they do after all.